Should Amazon buy Macy’s?

Discussion
Photo: RetailWire
Jun 01, 2017
George Anderson

Months after it was first reported that Macy’s might be on the block, no deal to acquire the department store chain has been made. And yet there’s no lack of speculation as analysts have suggested Macy’s and Amazon.com, for example, would be a suitable match.

As a backdrop, it was reported in February that industry sources had been approached about a potential sale of Macy’s. Hudson’s Bay Company, which owns its namesake chain as well as Lord & Taylor and Saks Fifth Avenue, was reportedly the primary suitor. Subsequent reports claimed no deal could be made as Hudson’s Bay was unable to secure the necessary financing.

For its part, Amazon has made acquisitions of other e-tailers in the past and the company has reportedly held internal discussions about pursuing Whole Foods. To date, Amazon has held pat.

So what makes some analysts believe Amazon should go after Macy’s?

As reported by Business Insider, Oliver Chen, a Cowen & Co. analyst, published a note in February that laid out potential benefits including Macy’s giving Amazon first-party access to new apparel brands it doesn’t currently sell itself. Amazon’s predictive analytics technology would benefit Macy’s in product selection and pricing.

“Amazon needs better brands, a more curated assortment, a physical place to return items, and customers could use help with ensuring fit — Macy’s would also give Amazon greater credibility in curation and fashion authority,” wrote Mr. Chen.

Zhang offered a similar assessment on Seeking Alpha. Macy’s market capitalization is currently at 2010 levels, making it relatively cheap to acquire.

“Think about the shipping cost savings for Amazon when consumers can just walk into a mall to pick up their online purchases in the same day,” wrote Mr. Zhang. “In addition, Amazon should be able to considerably consolidate physical space needed for its own use and sell or rent out the rest to offset the cost of the acquisition.”

DISCUSSION QUESTIONS: Do you think an Amazon.com acquisition of Macy’s makes business sense? What do you think would be the benefits and drawbacks of an Amazon/Macy’s deal?

Braintrust
"Amazon should only pursue Macy’s if it is prepared to reinvent the department store model from top to bottom."
"Other than grim, symbolic, satisfaction from replacing the Macy’s storefront sign with the Amazon name, Amazon would not gain anything..."
"This discussion reminds me of a similar discussion back in the late ’90s; should Macy’s become more like Walmart? They did..."

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30 Comments on "Should Amazon buy Macy’s?"

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Lyle Bunn (Ph.D. Hon)
BrainTrust

It is very exciting to consider how the customer experience in retail could move to new levels in a combined Macy’s-Amazon. The fusion of in-store and online, the extension of products and services offered, vendor relationships and a focus on discovery and fulfillment would make the marriage a wonder indeed. As in all successful marriages, being equally yoked toward shared goals is the key. Could the collision of cultures marshal the strengths that each brings? Indeed, the culture of “new” is its own force.

Mark Ryski
BrainTrust

This is a very interesting notion and the kind of “out there” idea that an innovator like Bezos would probably consider. While there are a number of potential advantages as noted in the article, it would indeed be a big swallow for Amazon who is only just finding its legs in brick-and-mortar retailing. I think one of the biggest drawbacks against doing this now is timing. There’s still a tremendous amount of churn and change happening with department stores, and I suspect that there’s still more to come for Macy’s. I believe that downside is more likely than upside for Macy’s so holding off makes sense. The benefit of such a deal is clearly physical points of distribution. Notwithstanding the success Amazon has had with Prime, shipping is still the bane of online retailing. Having the distribution network and points of presence of Macy’s could be very useful to Amazon.

Sterling Hawkins
BrainTrust

Amazon could benefit from physical distribution; however, there are far easier ways to acquire that than absorbing Macy’s. Key for Amazon in the brick and mortar world is leveraging technology and unifying the online/offline experience. They’re much better served continuing to create that with their proven ability to open stores. That said, everything has a price at which it makes sense.

Dick Seesel
BrainTrust

Amazon shouldn’t buy Macy’s if its only motivation is to use the stores as pickup and return centers. And I’m not sure that Amazon “needs” Macy’s to give its own apparel business more credibility — some reports suggest that Amazon will already become the number one seller of apparel in the U.S. this year.

Amazon should only pursue Macy’s if it is prepared to reinvent the department store model from top to bottom — something that Macy’s itself seems unwilling or unable to do. Amazon is already dipping its toe into other kinds of brick-and-mortar retail, but this would be a big jump.

Mohamed Amer
BrainTrust

I’m in violent agreement with Dick on this one :-).

Macy’s fit in Amazon’s retail strategy is a stretch and that strategy can be better served through other brick-and-mortar options (not necessarily acquisitions). Look at what Amazon has done recently: Amazon Go and Amazon Books — these represent using technology to deliver fast, convenient, friction-less commerce and the bridging of online data with a curated physical presence. A Macy’s acquisition only makes sense if Mr. Bezos decides to “reinvent the department store model from top to bottom” as suggested by Dick.

Amazon is great at creating new business models instead of fixing problems in existing business models. With all due respect to Macy’s, a true iconic retailer with a storied past, Amazon ought to pass on this one.

Ben Ball
BrainTrust

Gotta join in on the “Yeah, Dick!” chorus here. Amazon looking at Whole Foods (perishables/impulse grocery) is an entirely different focus than looking at Macy’s. About the only thing they have in common is “brick and mortar” — and that’s not a strategy. Besides, as others have pointed out, Amazon is well on its way to becoming the leading apparel retailer on its own.

And as for the idea of “needing a physical place for returns” — a brief story. (You knew there had to be one.) This morning on the way to work, my wife commented on how incredibly easy the return process (for an apparel item I ordered in the wrong size) had been. Online to Prime, click on the order, check the reason for return and up pops the prepaid UPS shipping label ready to be printed. Took less than 30 seconds for the whole thing. Her comment? “Returning things at Amazon is so much easier than doing it at a store!”

No, Amazon does not need Macy’s.

Charles Dimov
BrainTrust

Amazon has already been testing the waters with their own brick-and-mortar presence. Cementing their learnings with a major acquisition like Macy’s would push the omnichannel retail agenda. It would give Amazon a huge step forward, both in costs and physical presence — which impacts brand and options in a shopper’s mind. It would be a smart move for Amazon, presuming they can figure out the complexities of running a mass-scale physical retail business.

There are scary implications for all other retailers — especially department stores. Whether it is Macy’s or not … it will come. Be prepared, and start down your omnichannel path if you are not already there!

Phil Masiello
BrainTrust

Amazon is building physical stores in an effort to reach consumers faster with same-day delivery. Purchasing Macy’s would make business sense for Amazon in two specific ways.

First, it would provide 720 micro-fulfillment centers to support same-day delivery. Second, it would provide Amazon with a better fashion knowledge base and fashion platform to compete.

If this acquisition did happen, it would change the retail business model. Amazon puts customers first and uses data to better understand and service customers. And because of this, they would be much more efficient at managing the extended supply chain and create a highly profitable business unit.

I would love to see it happen.

Dave Wendland
BrainTrust

Although an interesting notion, I have to wonder if this is the best option for Amazon’s expansion. Consider the reinvention required to transform a department store operation to relevance; it’s a monumental task. Regarding curation of the latest and greatest fashions, etc., there are other less expensive paths to ponder — such as “acquiring” the best talent in the space at a fraction of the cost of assuming Macy’s infrastructure. And finally, Amazon’s continued move into brick-and-mortar begins with the question of location and access. Unless the real estate assets of Macy’s are unbelievably solid, I believe there may be alternatives for Amazon.

Gene Detroyer
BrainTrust

One of the biggest mistakes in M&A is paying too much when you think you are buying cheap. Macy’s has one significant asset — its flagship store. And that asset is because it is an iconic destination and not because it is great for retail shopping. Beyond that there is not much to Macy’s other than a out-of-date business model.

Of all the examples of why this might make sense noted in the article, every one of them can be accomplished without Macy’s.

Art Suriano
BrainTrust

I can see many benefits but probably more problems. Sure it would be amazing to see how Amazon could bring an older retailer into the new retail world with the latest technology but is that the solution for Macy’s? I have said before that I see Macy’s having an identity problem. They went from once being the leaders to now the chasers in retail concepts. I don’t know that Amazon, with no department store or any sizable chain retail experience, would have the ability to turn Macy’s into something successful.

I think what Macy’s needs are leaders who understand what drives customers into Macy’s stores because frankly I don’t believe the current ones do. Self-serve shoes, for example, is not the solution long-term. This just proves again how Macy’s is not leading but chasing after Kohl’s and Payless with that concept. Leaders lead and Macy’s lacks leadership.

Now if Amazon purchased Macy’s, invested money in it and put in visionary leaders who were capable of turning the company around, rebuilding the brand’s status to one all would admire, then that could be an excellent move.

Pavlo Khliust
BrainTrust

Yes, Macy’s acquisition may open additional access to brick-and-mortar at its scale, but Amazon has enough resources to build its own network, with its unique brand identity and latest technology in mind (Amazon Go and Fresh are the perfect examples of that). And fast. At this point, Amazon will either wait until Macy’s value drops more and then they acquire it, or they will try to take its market share in a more or less fair fight.

Max Goldberg
BrainTrust

Why would Amazon want to tie its brand to Macy’s? Amazon is everything that Macy’s is not. Amazon doesn’t need the headache of operating large box stores in malls that are losing customers. Yes they could gain access to Macy’s fashion brands, but given time Amazon will find its own way to succeed in the fashion sector. I see great gain for Macy’s and little upside for Amazon in this proposed merger.

Lee Peterson
BrainTrust

Good idea. I like it. The advantages are so numerous they’re uncountable. BUT the transition could be awful, especially in terms of expense. And for consumers/customers, witnessing said transition could be a loyalty killer for both brands. Taking the huge hairball that is Macy’s and making it something completely modern and relevant is a little like asking a human to give birth to a rocket ship. Yikes.

Shawn Harris
BrainTrust

I think acquiring Macy’s operations, assets and culture would be a mistake for Amazon. Amazon’s current model of strategically opening brick-and-mortar stores based on what’s in the interest of the customer and supply chain management theory is the strategy they should continue. Amazon should maintain deliberate speed.

Brandon Rael
BrainTrust

This is simply too risky a proposition. The disadvantages outweigh the advantages. If Amazon were to acquire Macy’s then they would assume all of the risks and liabilities of the real estate, warehouses and inventory ownership. Critical to Amazon’s phenomenally successful track record is their ability to be agile, fluid and shift their online-focused strategies without the anchor of big box retail ownership and costs.

This scenario would require a complete transformation of the department store experience and I am not sure this would be the wisest strategy for Amazon. Especially if you consider that they are taking a very conservative approach with their emergence into the brick-and-mortar model, taking baby steps with their newly-opened Amazon Books locations.

This scenario could prove effective if the acquisition also entailed scaling back the store square footage and evolving the in-store journey to one that is customer-centric, digitally-enabled, socially-connected and with a frictionless experience to beat.

Richard J. George, Ph.D.
BrainTrust

In a perfect world, such an acquisition would seem to make sense. However I would caution Amazon against a Macy’s purchase. Beyond the brick-and-mortar distribution advantages (BOPIS, expediting returns, add-on in-store sales, etc.) the two different retailers appear to be just that — different. The differences are in their respective strategies, target markets, differential advantages, competitive environments and organizational structures.

Does Amazon need some type of brick-and-mortar option? Yes, and it is testing alternatives. However the acquisition of Macy’s should not be considered a viable option.

Sky Rota
Guest
1 month 20 days ago

I dont think Amazon needs the aggravation of running department stores. Yes they are trying out Wawa-style three-and-a-half minute, in-and-out store experiences. Every retailer wants to be Amazon when they grow up, But Amazon doesn’t want to be every retailer. That is why they changed the shopping model — not to go backwards but forward. Last full day of school!

Meaghan Brophy
BrainTrust

This purchase would not make business sense. Other than grim, symbolic, satisfaction from replacing the Macy’s storefront sign with the Amazon name, Amazon would not gain anything from this acquisition that they couldn’t get elsewhere and for less of a headache.

Jan Rogers Kniffen
Guest
1 month 20 days ago

If anyone buys Macy’s it should not be Amazon. Big box formats are not in Amazon’s future and neither are retrofits. TJX should buy Macy’s. After all, without a full price player in branded product what is off-price but a low-priced department store? And if anyone needs to control the brands it is TJX. What does a brand say when the biggest off-price chain and the biggest department store chain merge? “Yes, sir,” that’s what.

Ken Lonyai
BrainTrust

Gene Detroyer and Max Goldberg hit the key points. How can buying a broken business model and a bunch of legacy leases possibly help Amazon? It can’t.

Lee Peterson has a brilliant graphic in one of his articles clarifying the rise and fall of Macy’s under Terry Lundgren and it boiled down to an amalgam of real estate.

I think Amazon can (and will) continue on its planned trajectory without entertaining these concepts and the Macy’s of the world will be crushed under their wheels unless some daylight finds its way to the C-suite.

Marge Laney
BrainTrust
1 month 19 days ago

This discussion reminds me of a similar discussion back in the late ’90s; should Macy’s become more like Walmart? They did, and their current condition is the result. The race to the bottom has confused their customers, and rendered them unable to sell anything without a coupon.

Amazon has a business model that works for Amazon. They are known for fast and cheap. They are not experiential, nor do they create brand loyalty through personal interaction.

It’s been said a million times, brick and mortar holds the keys to creating personal experiences that create brand loyalty. Providing a place for customers to interact with a brand’s products and their people has the potential to build strong emotional connections. Emotions are the primary reason why consumers prefer brand name products.

Macy’s needs to get back to the basics and sell experiences. Will they? Probably not.

Craig Sundstrom
Guest

I’m sorry, but I don’t see how Amazon could buy (only) the online portion of Macy’s, while — presumably — the physical stores continue on their own. Would Macy’s have no online presence or would it start up a new one (“Offstage.com” or something like that)? I’m not sure which idea is sillier, but no matter, I see little merit to this idea. Amazon should show it can sell stuff for a profit for an extended period of time before it pursues other companies that already do … even if that profit is dwindling.

Carlos Arambula
BrainTrust

I fail to see where Macy’s and Amazon converge. If Amazon needs a brick & mortar location, there are other retail chains that can be purchased that can offer the physical functions that Amazon might need. Do they really need physical locations?

Doug Garnett
BrainTrust

Great question. I think there’s a solid probability (not a guarantee) that Amazon’s only profitable retail future requires a pivot to brick and mortar. Wall Street won’t let them continue with just over 1/2 their revenue returning no profit. The margins on cloud services are superb (really extraordinary) and on devices and content are good.

Now they have to fix their profit problem on the rest of the business. And the economics are better in brick and mortar (as we’ve seen in some excellent posts lately) than ecommerce.

Looking at Macy’s, there’s one way that it might be a very smart way to quickly leverage up into a major brick & mortar play. On the other hand, it may come with so many liabilities at this point (many hidden) that they’d never make the pivot succeed.

gordon arnold
Guest

Amazon and Macy’s have almost no market commonalities. Macy’s has a few exclusive initial offering deals with high line product, but I’m not so sure that these vendors would be interested in dealing with a massive discounter. Macy’s is smothered in mall leases that are crushing the budget and seeing less and less traffic. About the only realistic aspect of this merger is that it would be totally consistent with Amazon’s getting involved with markets they now nothing about and/or failing businesses. I guess that all but insures they are very likely to give it a go.

Jeff Miller
BrainTrust

This makes very little sense for Amazon. Macy’s core issues would remain even if all of the stores were transformed to Amazon stores. Mainly, too many stores and too many in poor locations, average customer service and brands that are pretty much available everywhere else. Of course Amazon could and would close stores, try to spend time on training people and could benefit from access to more brands. However, there is no proof that Amazon is great at real in-person customer service and sales training.

They also could just start to pick off key locations when Macy’s and other retailers start to shutter their doors and start fresh with Amazon stores where they would still need to invest in people and training.

Verlin Youd
BrainTrust

To be honest — having thought about this all day I have had moments where I think it is brilliance and other moments where I think it would be sheer folly. It could be either based strategy and assumptions of business/execution model. Consider what it would look like if each Macy’s store became both a showroom and hyper-local distribution center for on-line purchases. It does sound beyond crazy, but some of the best innovations have looked that way at the outset.

Christopher P. Ramey
BrainTrust

Amazon and Whole Foods is interesting because the product is perishable. The only thing perishable with Macy’s is the department store category.

Franklin Chu
BrainTrust

It would be interesting to see Amazon buy Macy’s – not because Amazon would expand to more brick and mortar stores, but because Macy’s department store business could find the cure it needs to survive in the digital age. Department stores have been struggling from declining customer traffic and plummeting sales, and Amazon’s retail and e-commerce excellence could potentially bring more offline traffic and revenue.

However, if Amazon simply needs physical stores for hassle-free pick-ups and returns, Macy’s is an expensive choice. Also, the chain department stores are located far away from residential areas, making offline service via Macy’s stores rather inconvenient.

wpDiscuz
Braintrust
"Amazon should only pursue Macy’s if it is prepared to reinvent the department store model from top to bottom."
"Other than grim, symbolic, satisfaction from replacing the Macy’s storefront sign with the Amazon name, Amazon would not gain anything..."
"This discussion reminds me of a similar discussion back in the late ’90s; should Macy’s become more like Walmart? They did..."

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